Unemployment rate ... rises to 5.6 per cent from 5.4 per cent in February. Photo: AFR

Full-time jobs fell 7400 while part-time employment dropped 28,700, Bureau of Statistics data released this morning showed. The loss of jobs was driven by falls in part-time positions for men and full-time positions for women.

The participation rate fell to 65.1 per cent, from 65.3 per cent in February.

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At the same time, the aggregate monthly hours worked dropped by five million to 1627.3 million hours.

The Australian dollar dropped half a cent after the release, but quickly recovered to about $US1.052.

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Barclays chief economist Kieran Davies said the release was slightly surprising as some of the partial indicators linked to employment, such as a fall in the number of people on unemployment benefits in February, had not pointed to weaker jobs data for March.

"I think the most important news was the deterioration in the unemployment rate," Mr Davies said.

March figures ... the Australian economy loss jobs after a surprise leap in employment in February. Photo: Bureau of Statistics

"It had been relatively stable in recent market, [and this] indicates the labour market has loosened.

"I wouldn't read too much in to the losing of jobs as it had a huge increase the next month."

Mr Davies said the March figures meant that the underlying rate of jobs growth was not keeping pace with the big surge in population growth.

'Clear upward trend in unemployment rate'

Brian Redican, Macquarie Securities' head of Australian economics, said the unemployment rate was at its highest since 2009 when the Australian economy was confronted with the global financial crisis.

"There is a clear upward trend in the unemployment rate now, and that suggests the economy is growing below its average pace," Mr Redican said.

"The timing is quite interesting as well. It does seem to have occurred since late 2012, which is when we think mining investment had actually peaked. So it is consistent with the RBA's easing bias.

"There doesn't seem to be a circuit breaker to turn this around any time soon."

New jobs not keeping up with population growth

ANZ's head of Australian economics, Justin Fabo, said there had been some uncertainty on whether the March figures would drop after the sharp rise last month.

"Clearly it did. About half of the rise last month was unwound," Mr Fabo said.

"If you look at trend employment growth it's not bad at 12,500 jobs per month ... but the key thing there is that the population growth numbers at the moment are so strong that even underlying employment growth is quite soft. It's not enough to keep the unemployment rate from trending higher."

One of the forward indicators for employment, the ANZ jobs ads series, had been quite weak last year, Mr Fabo said.

But he expected the unemployment rate to stabilise in the next few months, reflecting the recent stabilisation of the ANZ job ads series.

Mr Fabo added that the employment-to-population ratio, which jumped sharply in February, had "more than unwound" the rise in March.

"The employment-to-population ratio fell to its lowest level since 2006, so it's not that positive. The average hours worked aren't rising and trend full-time employment growth is still contracting. When we look at those components, it's still a pretty soft labour market out there."

Economists expected the unemployment rate to remain steady at 5.4 per cent and the economy to lose 7500 jobs.

Rate cut expectations rise, but remain low

Labour force figures are one of the key indicators for the Reserve Bank when it makes its monthly cash rate decision.

Economists said they did not expect the central bank to ease rates at its May meeting despite the rise in the unemployment rate.

Financial markets were pricing in a 22 per cent chance of a cut next month, up from 16 per cent this morning. Markets were also pricing in at least one 25-basis-points cut for the rest of the year.

"Clearly this means that the RBA is not going to ditch its easing bias any time soon, but equally though, it's certainly not enough to make them pull the trigger for further cuts in coming months, because they have been expecting the unemployment rate to drift a little higher," Mr Fabo said.

UBS' chief economist Scott Haslem said the March rise was broadly in line with his expectations that unemployment would reach its highest for 2013 in the second quarter, before it stabilises at about 5.5 per cent by the end of the year.

"While the recent weaker patch of data lifts the onus on the upcoming data to continue to trend improve (today's jump in unemployment must lift the risk of a further RBA cut), we still expect the RBA to remain on hold this year," Mr Haslem said in a research note.

Labour force figures are one of the key indicators for the Reserve Bank when it makes its monthly cash rate decision.

'No replacement for mining jobs'

National Australia Bank chief economist Alan Oster said at an NAB Private Wealth conference today that non-mining investment was not filling the hole set to be left by the expected peak in mining investment this year.

"If non-mining investment is going to pick up you have to ask yourself 'if business isn't that confident, why would they do it?"' he said, AAP reported.

"That's one of the issues that, as a big business bank, we are quite concerned about — we don't see any sign of pick-up in business investment."

State-by-state breakdown

The unemployment rate in NSW rose to 5.5 per cent in March as the participation rate lifted to a seasonally adjusted 63.9 per cent.

In Victoria, unemployment also lifted to 5.6 per cent, with the participation rate dropping slightly to 64.8 per cent.

Queensland's unemployment rate remained steady at 5.9 per cent, but the participation rate slipped to 65.9 per cent.

South Australia's unemployment rate also held at 5.8 per cent as the participation rate increased to 62.9 per cent.

The unemployment rate in Western Australia rose slightly to 4.7 per cent as the participation rate dropped to 68.5 per cent.

Tasmania saw its unemployment rate jump to 7.3 per cent, as its participation rate fell to 60 per cent.

Unemployment remained steady in the ACT at 4.5 per cent in trend terms, after February's 11-year high 4.6 per cent unemployment rate was revised down 0.1 basis points.

In the Northern Territory, the unemployment rate edger higher to 4.2 per cent, while the participation rate fell from 73.2 to 72.9 per cent.